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GBP EUR Investors Await UK Public Borrowing Report

  • GBP EUR Hits New 2017 Low – Pair trends within 1.09 region
  • Lack of Data Keeps Pound Limp – Last week’s stats failed to provide support
  • GBP Forecast: UK Public Borrowing Ahead – UK growth data on Thursday
  • EUR Forecast: ZEW Surveys Today – Markit’s Eurozone PMIs tomorrow

GBP EUR saw no notable shift in movement during Monday’s European session. Despite warnings on Euro strength from the European Central Bank (ECB) and strong UK job market data in recent sessions, the Pound to Euro exchange rate has remained weak.

On Monday, the GBP EUR exchange rate trended within a relatively tight range between 1.0934 and 1.0971. The day’s low also happened to be the lowest 2017 level for the pair, and by extension the worst GBP EUR level since 2009.

Pound (GBP) Completes Worst Week in Over a Month

The last seven days were the worst week for Pound trade since early June, despite the publication of Britain’s better-than-expected June labour market report.

More jobs were made than expected, the unemployment rate improved and wage growth was stronger than forecast too.

However, as wage growth remained below inflation, real wages continued to fall, squeezing UK households.

On top of this, UK inflation fell short of expectations last week, dousing hawkish hopes that the Bank of England (BoE) could tighten UK monetary policy within the foreseeable future.

Analysts have noted that BoE rate hike expectations have plummeted. Sam Teague, economist from IHS Markit, stated;

‘Households continued to report a greater need for unsecured borrowing to bridge the gap between pay growth and inflation.

The sharp drop in the number of people expecting a Bank of England base rate rise in the near future provides an indication that households expect lending conditions to remain accommodative.’

With the likelihood of no tighter UK policy on the horizon, and ongoing concerns about how the UK government will handle the Brexit process, Sterling hasn’t been an appealing buy for investors.

According to Simon Derrick, chief markets strategist from Bank of New York Mellon (BNY) London;

‘The evidence of the past two weeks reinforces the view that political factors (particularly those that may, even very indirectly, impact the outlook for growth) are now a focus for investors,

This is useful to know, particularly given how fragile markets have often proved in Autumn.’

Euro (EUR) Supported by German Growth Optimism

Despite warnings on Euro value in the European Central Bank’s (ECB) latest meeting minutes, the shared currency remains in high demand and has held its ground near 2017 highs against the weak Pound.

The latest Eurozone ecostats were generally low influence. Greece’s current account from June rose from €-0.58b to €0.84b while Belgium’s consumer confidence survey from August remained at 2.

However, markets were encouraged by the latest monthly report from Bundesbank, which was notably optimistic about Germany’s growth outlook.

Bundesbank predicts Germany’s Gross Domestic Product (GDP) will grow at a pace of 1.9% in 2017, but according to the latest report, Germany’s growth could be even better than expected.

According to the report;

‘The underlying pace of economic activity, which was already quite strong in the previous year owing to buoyant domestic activity, recently accelerated again given a more favourable external environment, the report continues.

“Overall, GDP growth in the current year could even be somewhat stronger than expected in the June projection”, write the Bundesbank’s economists. In early June, the Bundesbank projected a 1.9% rise in calendar-adjusted GDP for 2017.’

With Germany’s economy seeing robust growth this year, investors are confident that German Chancellor Angela Merkel will be able to use economic rhetoric to her advantage in next month’s German elections.

GBP EUR Forecast: More Eurozone Confidence Stats Ahead

ZEW’s August economic sentiment surveys will be published today. The figures are forecast to have slipped since July. If they come in even lower than expected, the Euro could weaken.

Sterling demand could be influenced by today’s UK public sector net borrowing results, or CBI’s industrial trends report from August.

These results aren’t hugely influential, and Pound investors instead wait for Thursday’s UK Gross Domestic Product (GDP) projections before making any big moves on Sterling.

Notable Eurozone data will be published through Friday. Markit’s preliminary Eurozone PMIs for August will come in on Wednesday, as well as the Eurozone’s consumer confidence projection for August.

Thursday will follow with France’s August business confidence data, and lastly German growth stats and business confidence results will be published on Friday.

Eurozone investors are also highly anticipating a planned Jackson Hole symposium speech from European Central Bank (ECB) President Mario Draghi, despite recent reports indicating he would not offer any new guidance on monetary policy.

Overall, it seems likely the Euro will be driving GBP EUR exchange rate movement for most of the week.